How do equipment leases work?

In simple terms, equipment leasing has some similarities to an equipment loan, however it’s the lender that buys the equipment and then leases (rents) it back to you for a flat monthly fee. Most equipment leases come at a fixed interest rate and fixed term to keep those payments the same every month.

What happens at end of equipment lease?

At the end of the lease, you typically have the option to purchase the equipment at its fair market value, as determined by the leasing company, renew the lease, or return the equipment. An FMV lease is an operating lease, which means it doesn’t offer the benefits or responsibilities of ownership to the small business.

What happens if you default on an equipment lease?

Most equipment leases will provide that if a default exists and the lessee has not yet filed for bankruptcy, the lessor is permitted to terminate the lease and recover its equipment. In some cases, immediate termination and repossession, if feasible, will be in the best interests of the lessor.

Can a lessee cancel an equipment lease agreement?

However, the lessor retains ownership of the equipment and has the right to cancel the equipment lease agreement if the lessee contravenes the terms of the agreement or engages in an illegal activity using the equipment.

What happens when an equipment lease runs out?

While that is sometimes true, more often than not you are dealing with a small company with less assets than your own which finances its own access to equipment and is quite likely to cease to exist about the same time the lease runs out.

What to do if your equipment is no longer working?

If your equipment is no longer working, you may be able to use that as an out. Learn your state laws regulating leasing. You may find certain circumstances here through which you can break your lease, as well. Every state is different, so there is no real specific advice except to hit the books.

What’s the best way to lease an equipment?

Equipment leasing may be an excellent way to update your business without significant upfront costs. Almost any kind of property can be leased, from computers and heavy machinery to phone lines and cars. When equipment is leased, the renter can have it and use it for a certain amount time in exchange for payment of a rental fee.